ZARA's Inditex fights with Swedish H&M

The competition between global fashion retail chain giants H&M of Sweden and Inditex of Spain is dispute or wits? As far as fashion is concerned, they are better than the art of arguing, but when it comes to winning or losing, it is because of the difference in the thinking behind their respective business operations, and they look at the wits of different strategies and tactics.

On February 24th, Inditex, which has 8 fashion brands such as Zara and Bershka, welcomed its 2,700 stores in Huaihai Road, Shanghai. Although Sweden's H&M sales were ahead of Inditex, it also had to sigh: “The future is daunting!”

Inditex, a competitor from Spain, was founded in 1963, and H&M (Hennes & Mauritz) was founded in 1947. The history of rookie Inditex was short but it was twice as fast as H&M. This time Inditex landed in China and proved some of the analyst’s previous observations: Inditex’s expansion momentum has been stronger than that of H&M.

Speed ​​and profit contest

H&M's stock has always been seen as a benchmark for the apparel retail industry, but investors are now pouring more enthusiasm into Inditex. In 2005, of the 25 analysts who evaluated Inditex, two-thirds recommended investors to buy their shares, compared with only about half of analysts recommending H&M stocks.

This kind of preference is only because of the better growth of Inditex over the past few years. Although Inditex’s market value of approximately US$20.4 billion still fell to H&M’s market value of approximately US$28.6 billion, Inditex’s expansion momentum attracted many analysts and investors.

Since its inception, H&M has been popular in the world with its fashionable, high quality and affordable price. It is considered to be the representative of McFashion. But H&M is getting more and more affected by Inditex.

In terms of scale expansion, although H&M has nearly 1200 stores, Inditex already has 2,700 stores; Inditex has maintained a growth rate of about 20% since 1996, while H&M has been in recent years. The growth rate has been hovering around 10%.

It is Inditex’s rapid expansion that investors are looking for. However, speed is not the only game in the business world. In the face of Inditex's challenge of winning speed, H&M has repeatedly stressed that we must not only increase our growth speed but also increase our quality. We must not only open more new stores, but also increase the sales volume of existing stores.

In fact, H&M has always been known to be cautious in the industry. It takes more time and effort to focus on the more important content of the business world—profit. There are facts to prove: In the French market that both sides competed for, H&M opened 72 stores in 2005, which is far less than 123 of Inditex, but H&M's sales of EUR 564.4 million are still leading.

Inditex's rapid growth has attracted the attention of investors. Its stock's future potential and trend are good, guiding investors to rethink their stock value. However, some analysts pointed out that Inditex may not be able to surpass H&M profitability in the next eight years. Because of its rapid expansion, it sacrificed some of its profits.

Scale, speed, and profitability are the three elements that compete in the business world. How to balance? Inditex and H&M gave us two choices: Inditex won the battle with speed and played the battle of scale; H&M was keeping pace with profit and expanding steadily. There are no advantages or disadvantages in these two options. Whether it is speed, scale or profit, the key is to find a balance.

Assimilation and differentiation of expansion

Both Inditex and H&M have taken Europe as the main market. About half of Inditex's revenue comes from Spain, and one-third of H&M's sales come from the German market. Perhaps it is the different key market strategies that have caused them to have uneven heat on the road to expansion.

With the support of the real estate boom, Spain’s economic growth has exceeded the average of Europe for 10 consecutive years, which has given Inditex a huge benefit. Germany’s growth rate in 2005 was less than 1%. It is difficult for H&M to make it more difficult for H&M to let more consumers pay for their clothes under the pressure of economic contraction.

The fashion industry is an industry that is highly susceptible to market economy. Neither Inditex nor H&M has put all the “eggs” in one market “basket”. Now, both H&M and Inditex have opened stores in almost all countries in Europe and began to infiltrate each Other's strategic “ground”.

In fact, H&M and Inditex's new expansion plans are somewhat similar. They are aimed at the mature markets and big cities in the world, and at the same time, they are rushing the trend of fashion to more emerging developing countries. While H&M continues to expand the German market, it also penetrates into the United States, Spain, the United Kingdom, France, and Canada. Inditex also put Italy, France, the United Kingdom, Germany, Portugal, and Greece as new expansion priorities. Moreover, when Inditex brought Zara to China and vigorously explored the Asia-Pacific market, H&M blew the clarion call to enter the Middle East market. This fall, H&M will open stores in Kuwait and Dubai.

However, H&M has a more diverse expansion plan than Inditex. In fact, outside of the store's sales channels, H&M has begun to enter the online and mail-order market on a large scale. Moreover, H&M is putting more and more resources into the North American market. Although H&M has gone through detours since it entered the North American market in 2000, it has grown very rapidly. In the long run, the North American market is even expected to become H&M's largest market. In contrast, Inditex, which has always been ahead in terms of expansion speed and scale, has taken a much smaller step in the United States. To date, H&M has had nearly 80 stores in the United States, while Inditex has fewer than 20 stores.

For H&M and Inditex, the next few years are still the time to grab the market. Now, although there is a cross between the markets, the direct competition face to face is not fierce after all. In the future, though their path of expansion is different, they show some signs of differentiation. But we can see that their markets are Increasingly close and overlapping. It is foreseeable that the competition between H&M and Inditex will be more intense than moderate.